Risks involved with renting to family members

Q. I have a rental property and my cousin has asked if she can move in. What are the possible risks involved with renting to a family member? I feel funny about asking her to sign a tenancy agreement but I want to be covered in case problems arise.

A. It’s very common in instances such as this for normal tenancy procedures to be ignored. It’s my recommendation that you document the entire process properly, and consider whether it’s worth risking your relationship with your cousin.

At Rental Express we’re often brought in to untangle the mess created when an owner trusts a friend or relative to move into their investment property without the required checks made and paperwork completed.

If you decide to let your cousin move into your property, don’t feel uncomfortable about documenting the agreement. Simply explain that without this you’re both unprotected, and she’ll have no certainty over her accommodation and you’ll have no certainty over your investment.

There are a number of steps you should complete before having your cousin move in.

The first is the tenancy agreement. If you aren’t 100% sure on how to complete one, get some advice, as an incorrectly completed agreement could leave it void.

Complete an entry condition report. If there is any damage (accidental or otherwise) you’ll have a clear and accurate record of what the property was like at the start of the tenancy.

You’ll need to collect bond from your cousin which can be used by you if she doesn’t fulfil her payment obligations, or if she damages the property and refuses to fix it. Be aware, however, that the amount of bond you can legally ask for varies from state to state, and in most states you’re required to lodge this with a government-based agency. If you don’t follow the rules precisely, you might not have any legal claim to the bond, regardless of how your property is handed back.

While the above items are the minimum formal documents required, it’s also important to ensure that your cousin understands that your property is an investment, and in order to make it a good investment you’ll want to receive the highest return possible.

Have a frank and open conversation about the fact that you’ll be increasing the rent on a regular basis in line with market value.

Explain also that you’ll need to view the property from time to time, to ensure she’s looking after it, and that if you believe it isn’t being looked after or if she falls behind in her rent, you’ll need to ask her to leave. I recommend you have a specialist property management company manage the property on your behalf.

Chris Rolls - is the managing director of Rental Express, Brisbane’s largest specialist property management company with nearly $1bn worth of property under management on behalf of investors. www.rentalexpress.com.au

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